Should I Start an LLC as a Creator?

Creators are businesses – a $250 billion business. So it only makes sense to treat yourself as one. 

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At a certain point in your career, it’s a good idea for creators to form an LLC. You’ll not only reap the business tax benefits, but you’ll protect your personal assets from any potential legal issues.

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Here is what creators should consider when forming an LLC.

1. LLC: Short for limited liability company, it’s a business entity that separates personal and business assets, and can help protect you from legal ramifications.
2. Pass-through business, income, and taxation: Sole proprietorships, S-corps, and LLCs are all types of pass-through businesses, which just means that the profits from the business get “passed” directly to the owner or owners.
3. Partnership: When two or more people have a formal arrangement to manage and operate a business. There are multiple different ways, from an equal partnership where all partners split the profits and liabilities equally, to having partners with limited liability.
4. Sole proprietor/sole proprietorship: aAperson who owns an unincorporated business (meaning your business is not separate from your personal self).
5. S-corp: It’s a type of corporate pass-through business entity (only available to businesses with 100 and fewer shareholders) that can pass taxable income, deductions, losses, and credits directly to shareholders. S-corps do not have to pay corporate taxes.
6. C-corp: A corporate entity where the business and the owners and/or shareholders are taxed separately. C-corps have to pay corporate income tax.

LLC stands for Limited Liability Company, is a business tax entity that pretty much does exactly what it sounds like – limits your personal liability.

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Basically, an LLC lets you operate your business as an individual (or with partners), while enjoying the tax and legal benefits of a corporation. Plus, you can choose how you’re taxed – whether that’s as a sole proprietorship, partnership, S-corp, or C-corp.

There’s no hard and fast rule for when creators should form an LLC, but here are three general considerations. 

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1. Are you making at least five figures? It costs money to file for an LLC. Plus, in most states, you have to pay an annual LLC fee (in California, it’s $800 a year) to keep your registration up to date. So, you need to be making enough money as a creator to make filing worth it.
2. Do you feel the need to protect yourself from legal liability? Unfortunately, creators do get sued. If, for whatever reason, you feel at risk and want to protect yourself legally, forming an LLC could be a good idea.
3. Do you want to grow your business? LLCs can provide business tax benefits to creators (check out all these creator tax deductions here), but they also open you up to more funding, like business loans, lines of credit, private investors, and even venture capital.

The most important benefit of forming an LLC as a creator is that it protects your personal assets from your business assets.

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Let’s look at a real-world example: MrBeast. He was sued by his partner in his brand Beast Burger for $100 million. Luckily, because he formed an LLC, MrBeast the business is separate from Jimmy Donaldson the person, so Jimmy Donaldson is not personally liable for the $100 million.

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Here’s a list of some of the benefits of forming an LLC:

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1. Separation of personal assets from business assets. This way, you aren’t personally responsible for any of your business debts or obligations (which, in some cases, can be a lot).
2. Flexible tax structure. The default is pass-through taxation, but you can choose how you want your LLC taxed, whether that’s as a sole proprietorship, partnership, S-corp, or C-corp.
3. Business tax deductions. This mainly applies to LLCs that choose to be taxed as S-corps because they qualify for corporate tax deductions, like on insurance and vehicles.
4. Easy formation and maintenance. Compared to corporations, LLCs are much easier to form and maintain. Plus, because LLCs generally operate as pass-through businesses, creators don’t need to worry about filing a different tax form.